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Preparing for the FTC’s Noncompete Ban

The Federal Trade Commission (FTC) voted to issue a final rule on April 23, 2024, prohibiting employers from using noncompete clauses with most employees. The rule, published on May 7, 2024, will take effect on Sept. 4, 2024. Employers must notify affected employees, and existing noncompete clauses will be invalidated, except for those with senior executives. However, legal challenges may affect the implementation of the rule.

  • Ban on Noncompete Clauses: The final rule prohibits employers from entering into or enforcing noncompete clauses with almost all employees starting Sept. 4, 2024.

  • Invalidation of Existing Clauses: Existing noncompete agreements, except with senior executives, will be invalidated, and employers must notify affected employees that these clauses won't be enforced.

  • Key Definitions: The FTC defines terms like "noncompete clause" and "senior executive" and specifies what constitutes a term or condition of employment.

  • Exceptions and Enforcement: Limited exceptions include a bona fide sale of business and good-faith belief exceptions. Enforcement will be through FTC actions or civil litigation, with potential punitive damages for employers attempting to enforce illegal noncompetes.

Action Steps for Employers:

  • Audit Existing Agreements: Review agreements and policies to identify noncompete clauses and consider alternatives.

  • Update Agreements: Prepare updated agreements and policies that comply with the final rule but await certainty on the rule's implementation.

  • Communicate with Employees: Notify affected employees about the noncompete ban and consider alternatives to protect business interests.

  • Prepare for Legal Challenges: Monitor legal challenges and uncertainties surrounding the final rule's implementation and consider employee retention strategies.

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